Politicians using Jamie Dimon’s Fail Whale trade as a pretext to call for tighter banking regulations are performing exactly the correct public service in their job description. They’re supposed to respond to events as they happen, and create appropriate safeguards to minimize the risk from those events. And Senators Levin and Merkley make the point I’ve been making all day, that the legislation they wrote bears no resemblance to the proposed rule from the bank regulators, which allows for this type of activity.

Senators Carl Levin of Michigan and Jeff Merkley of Oregon, both Democrats, said in a conference call with reporters that as currently drafted by the agencies charged with carrying out the new law, the Volcker Rule, governing a bank’s proprietary trading, allows banks to amass a single, large bet as a hedge against possible declines in an entire portfolio of securities.

That, Mr. Levin said, “is a big enough loophole that a Mack truck could drive right through it.”

And that is what JPMorgan Chase did, the senators contend. Where the law was written to allow hedging of individual investments by banks to protect them from possible losses, it was not meant to allow hedging an entire portfolio or hedging in favor of or against movements in the economy, they said.

“That is a license pretty much to do anything,” Mr. Levin said.

Mr. Merkley, asked if he had a message for Jamie Dimon, the JPMorgan chief executive, said, “Yes. If you want to be the head of a hedge fund, be a hedge fund,” Mr. Merkley said. “Terminate your access to the Fed’s discount window, terminate your access to deposits, and then we have no quarrel.”

I love it. And bank regulations should absolutely be that simple, contra bank toady Allan Sloan. The fact that JPMorgan can absorb a bad bet like this has nothing to do with the implications for federal banking regulation. This is about the financial firms that cannot withstand this kind of loss, and who will ask the government to float them. This is about the unnecessary risk with no social or financial value that comes from these trades. This is about safeguarding the economy. Because it’s one thing if a plumbing company loses money; it’s another if a mega-bank does, as we saw in 2008. We now know that Wall Street learned nothing from that crisis.

Wall Street can’t be trusted to manage—or even correctly assess—its own risks.

This is in part because, time and again, Wall Street has demonstrated that it doesn’t even KNOW what risks it is taking.

In short, Wall Street bankers are just a bunch of kids playing with dynamite.

There are two reasons for this, neither of which boil down to “stupidity.”

The first reason is that the gambling instruments the banks now use are mind-bogglingly complicated. Warren Buffett once described derivatives as “weapons of mass destruction.” And those weapons have gotten a lot more complex in the past few years.

The second reason is that Wall Street’s incentive structure is fundamentally flawed: Bankers get all of the upside for winning bets, and someone else—the government or shareholders—covers the downside.

If I were a Wall Street executive with an implicit government guarantee, I wouldn’t care if I racked up big losses on profitable but risky bets, either. You’re always playing with house money.

The answer to this is a set of big, dumb rules, on capital requirements, on bank size, on walling off gambling from actual banking operations. Dodd-Frank does none of this, at least not in a big, dumb way. It has a maze of needlessly complex rules that allow for banks to ignore them. That means that the financial crisis has not yet ended.